Weekly wrap: Eurozone unemployment reaches record high
Surprise choice for new Bank of England governor; eurozone unemployment at record high
Global equity markets traded higher over the week with the All World Index hitting a six-week high. In the UK, Chancellor George Osborne surprised many with the appointment of Mark Carney, the current governor of the Canadian central bank as the new governor of the Bank of England when Mervyn King steps down in June 2013. Towards the end of the week, the Bank of England’s financial stability report estimated that British banks need to raise £20bn-50bn of new capital or restructure their businesses to shore up their balance sheets. Meanwhile, the eurozone unemployment rate reached a new record high in October, rising to 11.7%. At the same time, inflation slowed sharply from 2.5% in October to 2.2% in November. On Friday, German lawmakers approved the latest bailout for Greece despite growing unease about the cost to taxpayers.
A significant upward revision to third quarter growth revealed the US economy grew at an annual rate of 2.7% in the year to September as opposed to the initial estimate of 2.0%. Meanwhile, negotiations over the fiscal cliff issue soured towards the end of the week as the Republicans rejected the latest deal presented by the White House as “completely unbalanced and unreasonable”. In Latin America, Brazil managed just 0.6% growth in the September quarter, which was half the rate expected by analysts.
In Asia, the Japanese government approved a second round of stimulus with a package worth ¥880bn (US$10.7bn). The latest stimulus package is almost double the size of the previous package launched in October. The Indian economy slowed in the third quarter as growth dipped to 5.3% in the year to September from 5.5% in the second quarter.
Eurozone GDP to signal return to recession; US payrolls to suffer from weather-related job losses
On Monday, the UK manufacturing purchasing managers’ index (PMI) is expected to show a bounce in output and export orders with overall PMI rising to 48.0 from 47.5 in the previous month. On Wednesday, a modest rise in UK services PMI from 50.6 to 51.0 is expected as orders appear to have stabilised. Thursday sees the second release of the eurozone’s third quarter gross domestic product (GDP) number. Consensus expectations point to a decline of 0.1% quarter-on-quarter, which would confirm the region has slipped back into recession. Meanwhile, in Germany, factory orders are expected to tick up from a fall of 3.3% month-on-month (m-o-m) previously to a rise of 0.8%. UK manufacturing production on Friday is expected to show a further decline of 0.3% m-o-m, which is indicative of an overall weakening trend. Meanwhile, German industrial production is expected to continue to lose ground with a drop of 0.5% m-o-m.
In the US, construction spending is released on Monday and is expected to show a 0.4% change m-o-m, driven by an increase in private residential spending. Given the negative impact of hurricane Sandy, consensus expectations are pointing to a fall in the Markit US PMI from 52.4 to 51.4 and in the Institute for Supply Management’s (ISM) Manufacturing Activity Index from 51.7 to 51.3. New vehicle purchases are expected to increase as a result of the need to replace vehicles destroyed by the storm. Consensus forecasts point to 14.78 million total vehicle sales, up from 14.22 million in October. On Wednesday, a number of district Federal Reserve surveys suggest that the ISM Non-Manufacturing Activity Index is likely to decline from 54.2 to 53.5. Friday sees the release of payroll numbers, which are likely to have been capped due to weather-related job losses. Nonfarm payrolls are expected to increase by 100,000 from a previous rise of 171,000 while private payrolls should see a rise of 112,000 compared to 184,000 in October. Meanwhile, the University of Michigan Sentiment Index is expected to remain relatively unchanged with a preliminary reading for December of 82.5 compared to 82.7 previously.